Although a Last Will and Testament remains the most common estate planning tool, a living trust is not far behind in terms of popularity. If you find yourself to be the beneficiary of a living trust, you may have a number of questions about how the trust works. For example, you may want to know more about the lifespan of the trust. The Houston living trust lawyers at Mendel Law Firm, L.P. explain when and how a living trust terminates.
What Is a Living Trust?
The person who creates a trust goes by many names. They can be referred to as the “Settlor”, “Trustor” or “Grantor.” The Settlor appoints a trustee to transfer property to. The Trustee then holds that property for the trust’s beneficiaries. They also invest the trust assets and administer the trust terms according to the terms created by the Settlor.
Trusts all fall into one of two categories – testamentary or living trusts. A testamentary trust is activated by a provision in the Settlor’s Will at the time of death. A living trust activates once all formalities of creation are in place and the trust is funded. Living trusts can be further divided into revocable and irrevocable living trusts.
How and When Does a Living Trust Terminate?
The manner in which a trust terminates depends, to some extent, on the type of trust in question. If the trust is a revocable living trust or a testamentary trust, the Settlor has the authority to terminate the trust. It can be at any time and for any reason. However, if the trust is an irrevocable living trust the Settlor does not have the authority to terminate the trust after it is established.
The terms of a trust may also dictate when the trust terminates. It can do so by including a specific date or a triggering event on which the trust is to terminate. By way of illustration, the Settlor might include a term requiring the trust to terminate upon the marriage of the trust’s only beneficiary or upon the youngest beneficiary reaching a specific age. Another way a trust might terminate is if the Settlor gave the Trustee the discretion to terminate the trust when the trust purpose has either been fulfilled or there are not enough trust assets to do so.
Judicial Termination of a Living Trust
Sometimes it becomes necessary to petition a court to have a trust terminated. In the State of Texas, Sec. 112.054 of the Texas Property Code governs judicial modification or termination of trusts, reading in pertinent part as follows:
(a) On the petition of a trustee or a beneficiary, a court may order that the trustee be changed, that the terms of the trust be modified, that the trustee be directed or permitted to do acts that are not authorized or that are forbidden by the terms of the trust, that the trustee be prohibited from performing acts required by the terms of the trust, or that the trust be terminated in whole or in part, if:
(1) the purposes of the trust have been fulfilled or have become illegal or impossible to fulfill;
(2) because of circumstances not known to or anticipated by the settlor, the order will further the purposes of the trust;
(3) modification of administrative, nondispositive terms of the trust is necessary or appropriate to prevent waste or impairment of the trust’s administration;
(4) the order is necessary or appropriate to achieve the settlor’s tax objectives or to qualify a distributee for governmental benefits and is not contrary to the settlor’s intentions; or
(5) subject to Subsection (d):
(A) continuance of the trust is not necessary to achieve any material purpose of the trust; or
(B) the order is not inconsistent with a material purpose of the trust.
(d) The court may not take the action permitted by Subsection (a)(5) unless all beneficiaries of the trust have consented to the order or are deemed to have consented to the order. A minor, incapacitated, unborn, or unascertained beneficiary is deemed to have consented if a person representing the beneficiary’s interest under Section 115.013(c) has consented or if a guardian ad litem appointed to represent the beneficiary’s interest under Section 115.014 consents on the beneficiary’s behalf.
Contact Houston Living Trust Lawyers
If you have additional questions about a living trust, contact the experienced Houston living trust lawyers at The Mendel Law Firm, L.P.by calling 281-759-3213 to schedule a consultation.